Small businesses often struggle with sending out invoices to their clients. But it is a crucial aspect that affects the business’ cash flow. For a better invoice management for small businesses, it is important to produce and deliver invoices at the lowest possible cost and at the same time, they must stimulate clients/buyers to make the payment at the earliest. Using invoicing software is a great option for small businesses to reduce their invoicing costs while increasing their collections and improving cash flow.
Here are 7 tips to better manage your invoicing process.
1. Create a Checklist
This is very crucial during the initial account set-up process. You must collect detailed information when establishing your account to save both time and money later on. It is recommended to develop a physical checklist to avoid any human–error such as overlooking critical information. Also update your invoicing software using this information, which includes:
- Name of account
- Telephone numbers
- Address of business for bank statements, invoices and receipts. It also includes contact information of people receiving such information.
- Tax identification numbers
- Name and contact details of your major customer representatives who are authorized resolve billing issues or make purchases.
This is just a basic checklist and you can include additional information, depending upon your business requirements. For example, you can include names, contact details and account number of your clients; information of tax-exempt or resale certificates, and details about clients’ confirmation on relevant policy and service agreements.
Note that such information is confidential and you must provide appropriate security, especially when it comes to your clients’ financial information.
2. Automate Your Billing Process
Integrated accounting software is in vogue these days. A number of businesses, both small and large, are using accounting software packages to automate order and billing process and integrate them into the general ledger and reporting systems. This eliminates redundant staff work and reduces administrative expense and as a result improves management reporting.
These online invoicing tools delegate some of the tasks to your customers, allowing them to manage their online billing and payment processes.
3. Use Electronic Invoicing More Frequently
Using electronic invoicing in lieu of paper not only saves your money by eliminating the need for mailing, printing and storage of paper documents, but also enhances your data security. That being said, you need to take proper security measures to safeguard the data. To make your invoicing and collection process faster and cost-effective, pre-design your invoices, print paper copies automatically and send them along with your electronic bills.
Your invoices and statements (be it paper or digital) should include the following:
- Invoice number
- Name, billing address and contact number of the customer
- Name of the person ordering and purchase order number
- Description of product or service along with date of purchase
- Shipping information
- Payment terms and payment instructions such as a physical address for paper checks; credit card/PayPal payment details, and bank details for ACH payments
Make sure all documents are easy to read and understand. Considering using fonts like Times, Times New Roman, Verdana, Century Schoolbook, or Garamond with a font size of at least 10 points. Use black print and white paper and limit the use of other colors even for your logo or company name.
4. Monitor Your Invoicing Systems
Thorough and constant diligence is key to successful invoice management. Irrespective of the process you are using you need to monitor the invoicing system regularly. A Small business usually lacks large financial reserves, cash management is therefore critical to survival. In fact, you will also need the flow the cash to stay in business.
Create daily, weekly, and monthly invoicing reports to be well familiar with your accounts receivable and collections.
5. Offer an Easy Payment Process
Do not complicate your payment process unnecessarily. Instead, keep it as simple and easy as possible. Offer various payment methods to your customers:
Direct Deposit: Small businesses can leverage ACH service to completely eliminate paper checks. This helps reducing costs as well as improving cash flow.
Paper Checks: You can ask your clients to send the checks directly to a processing center. Banks these days also acknowledge electronic images of checks for deposit. To avoid the risk of ‘bad’ checks, you can use POS equipment and provide online processing to secure credit immediately.
Credit Card Merchant Account: Create a merchant account with a recognized credit card issuer to accept credit cards for payment. Consider establishing accounts with Visa, MasterCard, or Discover. Setup fees are usually higher owing to the security measures involved although the fees for individual transaction are generally low. Please note that this will only reduce the risk of non-payment and not eliminate it completely as credit card companies often allow users repudiate sales or return merchandise under certain conditions.
Credit Card Third-Party Merchants: More popularly known as “payment gateways,” these third-party merchants work as intermediaries between your business and the credit card issuer. PayPal is the most popular option. The costs involved are just reversed from Credit Card Merchant Account, i.e. low initial setup fees and higher transaction fees. As you need to transfer the valuable details to a third party, there are chances of security breaches especially if the payment gateway fails to incorporate strong security protections.
These days you also have the option of accepting bitcoins, a form of electronic currency, for payment. However, small businesses should rather avoid this method as-of-now as bitcoins have no or a limited history of use and are unregulated.
6. Minimize the Ratio of Accounts Receivable Days
As mentioned, cash flow is critical to every business, irrespective of its nature and size. Your “Accounts Receivable Days” denote how long it takes you to receive the money for a sale you have made. It is calculated as:
(Accounts Receivable / Annual Revenue) x Number of Days in Year
In a recent report, Apple stated that the company’s Accounts Receivable Days is less than its Accounts Payable Days. This helps to analyze the cash flow for any company. For example, if your accounts receivable days are around a month from the time of issuing your invoice, delay by even an extra week can cause restricted cash flow for a small business.
It is therefore important to reduce the Accounts Payable Days ratio as much as possible. Here are some ways to do it:
- Send the invoice soon after the sale is made.
- Provide options for electronic payments during the time of sale.
- You can even offer incentive to your clients for making quick payments.
- Similarly, charge interest penalties or late fees to clients for slow pay
7. Use Automatic Reminders
To avoid slow pay it is important to send invoice reminders to your clients. Now, it is a challenging job to send them manually and will also cost you significant amount of man-hour. However, you can use automatic invoice reminders instead to avoid late paying. There are many free online invoicing tools using which you can send emails to your customers once the invoice’s payment deadline has passed. This is one of the basic ways to manage late payments and there are more to help you collect dues more easily.
There is hardly any plug-in substitute to proper cash management. Managing your invoicing process helps you to avoid problems arising from billing and collections. The above tips can help you keep abreast of your progress and improve your cash flow but diligence is crucial. Overlooking obvious steps can only make things even harder for you.
Image Source: paychex.com